Any experience acquiring a staffing company + no collateral acquisitions
January 19, 2023
by a searcher in Dallas, TX, USA
Does anyone have experience acquiring a staffing platform? How should I think about multiples in this space?
How do lenders look at companies with no physical collateral (just human capital delivering a service)?
Please let me know if you would be open to discussing your experience?
from Hofstra University in Melville, NY, USA
There are plenty of asset based lenders who will fund a large part (up to 90%+) of your invoices assuming your customers are credit worthy and to a degree you are. These range from more factor like arrangements to credit lines based on collateral pledged. I have seen lines as low as SOFR + a few % points.
If you are looking for acquisition financing, they are several companies that will fund acquisitions up to a certain EBIDTA multiples, some are ok with just debt, and some look for some equity and mez type returns on part of the stack. Not sure how many of them will fund someone without industry experience as most of my conversations were related to companies trying to do tack on acquisitions. SBA financing if that is your route is always applicable.
Multiples are always in ranges based on several factors including size, GM%, client concentration, stability and a host of other factors, but this industry typical has great arbitrage for growing the business. You see larger companies having much larger multiples are you go up the EBITDA stack from <$1 M to $2-5M, $ 10-50M+ (often PE platform companies) to public companies. This was amplified in a lower interest rate environment, but still there.
I always prefer doing a mix of cash, earnout and sometimes a note. In this market seller notes (if allowed with your other financing) can work out great. The earnout is an important piece to negotiate as there are a lot of risks you can't always see from the buyers seat.
Hope that helps some.
from Dartmouth College in San Diego, CA, USA
Look at how much revenue is recurring vs. how much is purely consumption (i.e. are they selling a platform subscription plus a per use fee, or just per use) and the take rate.
Check growth rates over the past few years, and see if there are logical new markets. For example, AI training is a massive and growing market right now; can you expand into that with some reasonable confidence? Or is it more physical or long-term staffing where the current market uncertainty will impair the next year's worth of business?
Also, evaluate their workforce supply growth - figure out how much of their new workforce supply is sourced via referrals (it should be very high) vs. other methods. Also, take a look at their churn rate - how commonly does someone from their workforce supply stop working with them. Also, you'll probably see that a small cohort is responsible for a disproportionate amount of the value of staffed work, so understand that dynamic. In any marketplace you are almost always supply constrained (this is an increasing problem the more custom and niche the staffing) so this is a particularly important part of their business.
Finally, do they have at least one reliable sales/marketing channel that you can invest in to acquire new customers? Essentially, is there a well-understood way to spend money to generate money?
Staffing businesses can be really good businesses, so I wouldn't be scared away by a high-multiple as long as the details check out.